Behind Netflix's UK launch: Why now, why no DVDs, and what's next?

When your product consumes 30 percent of America's residential
internet bandwidth in the evenings, you need to be careful when
launching that same product in a new country. That happened today
as Netflix, the 20-million-member movie streaming service, went live in the UK. Chief Executive Officer and Netflix
co-founder Reed Hastings is in London for the occasion.

It's 3pm on a warm January afternoon and I'm being led through a
luxurious Mayfair hotel in London. "Reed has just stepped out for a
walk around the block," I'm told as I'm walked down a black-walled
corridor, handed a coffee and asked if I'd signed up to Netflix yet. "Yes, this morning. I watched
the first five minutes of Man On Wire." It was the first
film listed under "Critically-acclaimed Documentaries", and one I'd
been yearning to watch. Netflix knew me too well, too quickly.

Now in a posh movie junket-like hotel suite, Hastings, 51, and
fresh from his walk, began to carefully answer my questions. "DVD
is declining and streaming is growing," he said, as I asked why he
had decided to ignore the DVD-by-post business model his company
was famous for. "It was an easy choice. DVDs are a declining
business, that's definitely true. But it'll be a long tail;
there'll be people who like DVDs in five or 10 years time."

But this decision to be streaming-only meant the company was
able to launch in the UK at a very low price point, instantly
making customers ask themselves, "Netflix or Lovefilm?" In truth,
Hastings sees the UK market differently. "I think of [Netflix and
Lovefilm] as two rivals and we'll learn from each other," he
explains. "But we're mostly competing with Sky Movies and Sky
Atlantic. There's about five million Sky Movies subscribers and
we'd like all of them to join Netflix."

It makes for an interesting consumer choice: Lovefilm, for
streaming and back-catalogue and renting new DVDs; Sky Movies for
streaming blockbusters; or Netflix. That goes without mentioning
Tesco-owned Blinkbox or services
provided on games consoles. It's an exciting new landscape for UK
movie and TV fans, and Hastings is clearly excited by this. "In
general the [UK] entertainment business is vibrant. If you look at
Sky Atlantic or Sky Movies, these are big businesses that haven't
had much competition. And now Lovefilm's getting into streaming and
we're both providing some competition."

Netflix is also providing an enormous task to the UK's broadband
infrastructure. Using the web-based video player alone, one hour of
high-definition Netflix content will require you stream over 2GB of
data -- and that's just in 720p resolution. Move over to the Xbox
360 or PlayStation 3, where 1080p streaming is supported alongside
5.1 surround sound, and that number gets only larger. The company's
mobile phone applications, available on iPhone and Android, support streaming over 3G
networks too, bringing this potential dataflood to the likes of
Vodafone and Orange, as well as the broadband ISPs.

I was compelled to remind Hastings of the
30-percent-of-all-US-internet-traffic figure touted a few months
ago to see if he twitched. He didn't. "I think it's reasonably
accurate for residential bandwidth," he admits. "So we should
expect a similar figure for the UK?" I asked. "Yeah,
absolutely."

The broadband providers will be pleased indeed. In 2007, at the
birth of the BBC's iPlayer, the UK's ISPs feared the ensuing
"exaflood" of data caused by the popularity of free downloads of
BBC television shows would cripple their aging networks. It was
even suggested the BBC should cough up to help pay for the bandwidth. Cough it
did, but it wasn't money that came out of this figurative corporate
mouth, but the words, "Ha, funny. No chance."

Hastings doesn't think this is about to happen again, however.
"As there's more and more streaming -- whether that's Skype or
YouTube or Netflix or Sky Go -- broadband providers are investing
in more fibre optic. And even just a single fibre optic can carry
all of Netflix's streaming." In other words, networks are better
able to cope now than five years ago.

So with a healthy rivalry of what feels like Netflix and
Lovefilm versus Sky, and the confidence that the UK's networks are
able to handle the huge back-end strains of the Netflix system,
what's next? "What we want to do is have a passionate base of very
happy members," Hastings explains. "Our focus now is member
happiness rather than total numbers. If we've got very happy
members, it's easier to expand."

Social movie-watching is also a key factor for British
customers. "I think some of the most innovative work we're doing in
the UK is the social integration with Facebook. The way it works is
similar to how Spotify works, where you can see what your friends
are listening to, or watching in the Netflix case, and it's really
fun. You see a lot of social news applications, that's rapidly
growing; and social music. We're cutting a lot of new ground with
social video and that's going to be really exciting."

Apparently it's exciting enough to the public, too -- earlier
today Lovefilm's account cancellation hotline was too busy to take
the call of one customer we spoke to who wanted to move to
Netflix.

Personally, there's room for both in my life, plus iTunes,
because Netflix doesn't offer game rentals, Lovefilm doesn't do HD
on my MacBook and neither offer downloads for offline playback. But
really, the true winner will be whichever company loads the
remaining 85 minutes of Man on Wire fastest for me this
evening.

Edited by Olivia Solon

Comments

I signed up for netflix about a month ago and really like it but seems to be lacking in new content unlike the US netflix, will the new stuff come in time?

Elliott

Mar 10th 2012

The content in the UK is a joke. Get the US version instead: http://vpnfreedom.com/netflix/how-to-watch-us-netflix-in-the-uk/

Thomas

Mar 27th 2012

i have to strongly recommend NetFlix their streaming service is far superior to Lovefilms utterly frustrating and poor streaming service, as someone who has tried both i am staying with NetFlix rarely do i have problems and their catalogue is improving. I am leaving Lovefilm very shortly to rejoin my faithful love NetFlix.

richard

Feb 19th 2013

I only just joined netflix and have to say that the choice is terrible. I wanted to watch up to date movies not 5-10 year old movies, a lot of which I've never even heard of. B rated at best. I would rate Lovefilm over netflix any day in terms of choice. If lovefilm sort their streaming out (which I haven't actually tried myself but just going on responses in this thread) then they could easily out market netflix.